Market Comment
- STANLIB’s economist, Kevin Lings, continues to believe (even after recent weak numbers) that there is only a 20-30% risk of a “double-dip” recession in the near term, meaning that there is a 70-80% probability of continued, albeit slower, global growth. Many top analysts/economists agree with this view, saying that it is quite normal to have a slowdown after an initial burst of activity, as the re-building of inventories comes to an end.
- Volatility remains high in markets as the news ebbs and flows from good to bad during this slowdown, causing emotions to run high.
- Last week markets jumped smartly by 3-5%, just when many investors were preparing to jump ship. Many did just that as US equity funds saw their 5th largest weekly redemption on record (2nd largest since June 2008). Global money markets attracted $33.5bn, which is the biggest weekly inflow since the dark days of January 2009.
- But the bottom-line for equities offshore and locally is the big picture, namely the world economy, because this directly affects company earnings, which feeds into share prices.
- A few commentators have lowered their growth forecasts for the US because of the slowdown, but are still forecasting 2.9% growth for 2010 and a little slower for 2006.
- One of the most convincing pieces of the puzzle arguing in favour of the continuation of a cyclical global bull market in equities is the US yield curve, where the ten year US government bond exceeds the short-term Fed Funds rate by around 3%. This usually foretells of positive economic growth.
- On the currency front, the euro bounce against the dollar is so far intact, in line with renewed risk-taking by investors (and a much lower Vix or fear index) and although the rand has regained a bit against the pound, the trend of rand strength to the pound remains broken.
Snippets of Info
- Spain stands to benefit much more than Holland from its mighty win because its 40.5 million people have been suffering badly from one of the nastier economic slumps and very high unemployment of over 20%. So let’s hope the “animal spirits” there help raise the Spanish people out of their economic suffering and boost their economy.
- South Africa has made us all extremely proud through staging the world cup and the Sunday Times’ quote from former US politician (born in Germany), Henry Kissinger (he of the deep, deep gravelly voice), says it best: “It has been the most exciting (world cup) and I have never seen one better organized and with greater hospitality.”
Economic Weekly
- The global economic recovery remains uneven and conditions for sustained growth appear to be fragile.
- SA manufacturing rose by a modest 0.3%m/m.
- Overall, we expect manufacturing activity levels to soften over the next few months, especially on an annual basis.
- Offshore, US government revenue is responding to the improvement in economic activity and is now up 25%y/y.
- The US fiscal deficit is slowly improving, but remains substantial relative to GDP.
- US housing activity has been exceptionally weak.
- The IMF revised up their world growth projections for 2010 and according to them, the world economy expanded at an annualised rate of over 5% PPP basis (Purchasing Power Parity) during the first quarter of 2010.
- US consumer credit declined by a further $9bn in May 2010, much more than expected. This follows a heavily revised decline of $14.9bn in April.
To see the full review, Read on….